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Company Discretion and Employee Commissions

Often times neatly tucked away in a commission plan is some language that allows an employer complete discretion in administering, changing, interpreting, or cancelling the plan. On this point, an interesting case was just decided in the United States District Court for District of Massachusetts, McAleer v. Prudential Insurance Company of America, C.A. No. 12-10839-DPW, (D.Mass Feb. 28, 203), which addressed the validity of such provisions.

The long and the short of it was the Court did not side with the employer, stating:

Prudential argues that because the plan affords it complete discretion for interpretation and payment calculation — including discretion to determine whether McAleer was eligible to receive commissions as an active employee in good standing — McAleer’s commissions cannot be arithmetically determinable. This argument fails.

Discretion prevents commissions from being definitely determined if the employer is under no obligation to award them. See Weems v. Citigroup Inc., 900 N.E.2d 89, 94 (Mass. 2009) (holding that the “operative fact” in finding discretionary bonuses not to be definitely determined is “not [that] they are labeled bonuses, but [that] the employers are, apparently, under no obligation to award them”). While Prudential exercises substantial discretion in the administration of the commission plan, the commissions are not themselves discretionary. The plan does not afford Prudential carte blanche to withhold or modify commission payments for any reason. It simply affords discretion over factual determinations, calculations, and eligibility. To interpret the discretion under the plan as broadly as Prudential would have it would render the plan meaningless.

The gravamen here is that an employee must be watchful for whether an employer is actually promising to pay them commissions if they do certain things. Unfortunately, this often involves reading legal jargon when one is excited to start a new job. I don’t know how realistic that is except for high-level sales executives that have the incentive and experience to get independent counsel or to just read the provisions of their plan very, very carefully. MOst don’t do this.

McAleer actually stands for something rather simple: discretion to interpret or administer a plan does not equal being able to simple strip an employee of her earned commission. That is a different type of discretion. However, total discretion can exist, such as in a case when compensation or bonus is truly a matter of manager discretion by virtue of the plan terms, regardless of objection metrics. In such cases, the Weems holding will come into play to potentially give an employer the right to not pay a disfavored employee.

If you think you’re owed a commission or bonus in Massachusetts, it makes sense to drop us a line. If you think you are owed money and want to file suit if you have a case, we will usually review a commission plan for free to see what options you have.

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